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Top Picks 2021: Quarterhill (QTRH)
01/12/2021 5:00 am EST
Quarterhill (Toronto: QTRH) (QTRHF) was incorporated in 1992 and is based in Canada; one of its two primary areas of focus is licensing patents in numerous sectors via their WiLAN subsidiary, explains Benj Gallander, editor of Contra the Heard.
The second, through International Road Dynamics (IRD), concentrates on solving transportation problems.
The enterprise has been progressing quickly of late. In early October, Quarterhill upped guidance for Q3 2020. Revenue was bumped to a range of $80 to $87 million, and expected adjusted EBITDA was to be between $32 and $36 million. Strong results from both the patent licensing subsidiary and International Road Dynamics prompted the move.
The final numbers ultimately beat the high end of the estimates. Revenue was $88 million and adjusted EBITDA was $39 million, about a quadruple from last year.
This strength was driven by a record quarter at IRD and the best quarter in three years for WiLAN. Net income was a sexy $24.5 million, while cash and equivalents were a healthy $129.7 million. With a puny amount of debt, Quarterhill’s balance sheet seems as solid as Alberta’s Rockies.
There were some other ripples of activity in the third quarter. Quarterhill has a new CFO named John Rim (no relation to the former Blackberry). WiLAN signed new licensing agreements — notably with Intel, Konica Minolta, and IBM. And at IRD new orders were penned with the State of New York, Ukraine, and Paraguay. Now there is a threesome!
QRTH also completed a substantial issuer bid, buying and canceling 2.7 million shares, after which a further ask got underway to buy up to 11.3 million public shares. In Q3, 1.6 million shares were bought at an average price of $1.89. That good ol’ dividend of $0.0125 was also declared but it seems high time to raise it. Or at least pass us a special dividend payout. Still that is much better than GICs these days.
It is obvious that Quarterhill is poised and loaded up to “consider a broad set of M&A opportunities." They recently spent about $6 million to take over Sensor Line GmbH, which will become a part of IRD. This outfit makes fibre optic traffic sensors for rail and road.
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Over the last two years, Quarterhill’s share price has been on a slow and gentle trend upward. There could be a jump when there is a conclusion in their lawsuit with Apple (AAPL).
In the latest thrust and parry, the Cupertino, California multi trillion-dollar enterprise appealed (not pealed an apple) the final judgment of $108.9 million on July 15, and Quarterhill filed a cross appeal on July 28. Legal ho-hum, but QTRH is guaranteed to win a minimum of $10 million. If the market is still shining when the final decision comes, it could provide a strong tailwind.
Our feeling is that Quarterhill has an excellent chance to do a double from the current stock price. This would still leave it far below the level of $9.00 plus where it traded in the past.
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